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Testing the Martingale Difference Hypothesis

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Author Info

  • Manuel Dominguez
  • Ignacio Lobato

Abstract

In this paper we consider testing that an economic time series follows a martingale difference process. The martingale difference hypothesis has typically been tested using information contained in the second moments of a process, that is, using test statistics based on the sample autocovariances or periodograms. Tests based on these statistics are inconsistent since they cannot detect nonlinear alternatives. In this paper we consider tests that detect linear and nonlinear alternatives. Given that the asymptotic distributions of the considered tests statistics depend on the data generating process, we propose to implement the tests using a modified wild bootstrap procedure. The paper theoretically justifies the proposed tests and examines their finite sample behavior by means of Monte Carlo experiments.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Econometric Reviews.

Volume (Year): 22 (2003)
Issue (Month): 4 ()
Pages: 351-377

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Handle: RePEc:taf:emetrv:v:22:y:2003:i:4:p:351-377

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Related research

Keywords: Nonlinear dependence; Nonparametric; Correlation; Bootstrap;

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Citations

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Cited by:
  1. Carlos Velasco & Ignacio N. Lobato, 2004. "A simple and general test for white noise," Econometric Society 2004 Latin American Meetings 112, Econometric Society.
  2. Stute, W. & Presedo Quindimil, M. & González Manteiga, W. & Koul, H.L., 2006. "Model checks of higher order time series," Statistics & Probability Letters, Elsevier, vol. 76(13), pages 1385-1396, July.
  3. repec:ltr:wpaper:2010.07 is not listed on IDEAS
  4. Domínguez, Manuel A. & Lobato, Ignacio N., . "A consistent specification test for models defined by conditional moment restrictions," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/376, Universidad Carlos III de Madrid.
  5. Amélie Charles & Olivier Darné & Jae H Kim, 2010. "Small Sample Properties of Alternative Tests for Martingale Difference Hypothesis," Working Papers 2010.07, School of Economics, La Trobe University.
  6. Friedrich Geiecke & Mark Trede, 2010. "A Direct Test of Rational Bubbles," CQE Working Papers 1310, Center for Quantitative Economics (CQE), University of Muenster.

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